Coherent Under Heightened Scrutiny to Deliver on AI Optics Promises After Q2 Review

What happened

Coherent Corp. (COHR) reported Q2 FY26 results with strong bookings but persistent supply bottlenecks, putting its AI optics narrative to the test. The DeepValue report highlights that COHR's high valuation (EV/EBITDA 32.4, P/E 131) prices in robust growth, yet execution risks are elevated due to indium phosphide (InP) laser capacity constraints. A Seeking Alpha article underscores that Coherent must secure significant optical wins soon, amplifying pressure to convert record backlog into revenue. Management has guided for double-digit sequential datacenter growth in the March and June 2026 quarters, with InP ramp and assembly expansion being critical gating factors. Investors are now focused on these upcoming quarters to validate whether COHR can sustain growth and justify its premium amid a crowded trade.

Implication

COHR's elevated valuation leaves no margin for error, demanding consistent shipment conversion from backlog to avoid a multiple compression. Key downside risks include failure to double InP capacity by Q4 CY2026, which would prolong supply constraints and erode investor confidence. Upside hinges on successful 1.6T transceiver deployments and margin expansion from 6-inch InP scale economics, but these are not yet proven. Monitoring book-to-bill ratios and management updates on supply chain improvements will provide early signals of execution quality. Given the stock's sensitivity to growth cadence and crowded AI optics sentiment, any deceleration could prompt a rapid downturn, emphasizing the need for cautious positioning.

Thesis delta

The Seeking Alpha article reinforces the DeepValue report's core thesis that COHR must deliver on near-term growth milestones to sustain its valuation, with no material shift in the investment case. However, it amplifies the urgency for execution over the next two quarters, highlighting that public commentary now mirrors internal concerns about supply constraints. Maintain a 'WAIT' rating until March and June 2026 results provide clarity on growth sustainability and InP ramp progress.